Monday, January 31, 2011

Peak Oil transition: Strategic Commodities: U.S. control of 'rare earth' minerals slipping tnr.v, czx.v,, lmr.v, tsla, rm.v,,,, jnn.v, sqm, fmc, roc, li.v, wlc.v, clq.v, lit, nsany, byddf, gm, dai,, hev, aone, vlnc

  "Over 60% of the world's oil reserves are in the Middle East and Egypt holds the keys to this region stability. Nobody knows for sure where this Street Revolution in the Wikileaks time will lead this nation, but one thing is clear that this fire could spread very fast and, as you can guess, Oil markets are controlled by not so democratic regimes in general with their own agenda. We will doubt that the health of western consumers will be the number one concern on their mind in the future.

  This almost "perfect" Oil Demand Supply scenario from IEA on the chart above has accounted for "Crude Oil: fields to be found" - politically correct way to scream about Oil Shortage in the nearest future. Nobody was even thinking about any pressure - like Egypt eruption - on the world oil supply markets. We are not calling for panic now, but for how long can we continue to rely on the Oil map above to carry up our economies?

"Egypt on TV screens screams about Oil Age coming to an End - our recovery is too fragile to sustain the coming Oil Shock - we have the way out now and we can chose what to do next. At the certain level of Oil price all worries and concerns related to Electric Cars will be gone - you will be just happy to be able to drive."
  "Nothing is changing under the sun in the US Corp. so far - America is under the oil lobby stronghold and if you would like to understand the real situation, just talk to the junior miners in Lithium and REE sectors. Chinese, Koreans and Japanese companies are the only one on the road now, buying all available projects in Lithium and REE space.

  Facebook is great, but how are we going to drive in five years time? What are we going to eat for that matter with Oil above 150 dollars again?
  There is almost no money available now in U.S. or Canada to advance the Lithium and REE exploration, apart from few names everybody is talking about now. The rest of the sector will be funded by the Asian interest in the end."

"U.S. control of 'rare earth' minerals slipping

By Lou Kilzer
Sunday, January 30, 2011

When China slashed export quotas of fundamental minerals in 2010, it awakened America to a danger that has been building for more than a decade, experts say.

Those minerals, called "rare earths," shape a modern nation's defense and economy.

Your iPhone and hybrid car won't work without them, nor will your laptop computer. The Pentagon needs them for its precision-guided "smart" bombs.

China has locked up the supply — stripping the United States of its dominance.

U.S. lawmakers in both parties blame China's "mercantilist" policies — state interference in international trade. Yet, the United States and other nations also were caught napping, according to members of Congress, lobbyists and industry experts.


• China produces 97 percent of the rare earths used in high-tech items such as fiber optics, flat-panel monitors and televisions, and electricity-generating wind turbines.

• Through export policies and tariffs, China forces foreign companies to manufacture there in order to remain competitive. And where manufacturing goes, research and development often follow.

• China dominates more than rare earths. It leads the United States (or even the rest of the world combined) in key elements such as germanium, indium, antimony, zinc, manganese, tungsten, magnesium, cadmium, pig iron, graphite and fluorspar.

Those materials, used to make alloys, feed China's surging steel industry. A decade ago, China and the United States produced roughly equal amounts of steel; in 2010, the United States produced about 90 million metric tons — to China's 630 million.

• China is acquiring even more foreign resources. While most of the world fell into recession in 2008, China went on a spending spree: It bought all or part of 184 foreign mining assets for $37.2 billion, according to the U.S. accounting firm Ernst & Young.

Recently, Shanghai Securities News reported that China may create a strategic stockpile of rare earths, tungsten, antimony, molybdenum, tin, indium, germanium, gallium, tantalum and zirconium.

In contrast, the United States began selling its reserves in the 1990s.

China has positioned itself to surpass the United States in purchasing-power parity — a closely watched measure of an economy's real size — next year, according to the Conference Board, a nonprofit international business association.


The situation leads some analysts to stark conclusions.

"The free market isn't working right now," says Rep. Mike Coffman, R-Colo., who intends to sponsor legislation to re-stockpile strategic materials.

China, he says, "had the foresight to say, 'We want to be a manufacturing country. There are critical components to that in terms of raw materials, and we're going to make sure that we have unfettered access to those supplies.'

"And now it's (their) goal as a country not to export those raw materials. It is to export finished products."

John Pike, a defense expert and director of, a Virginia-based website analyzing military and intelligence matters, says "we cannot pretend there's a free market when there's not."

Ronald Ashburn, executive director of the Association for Iron & Steel Technology, a Warrendale-based nonprofit promoting industrial research, says China controls "huge aspects of the world capacity for many materials."

Congressional staffers, speaking on background, agree.

"China is going to produce, whether they are making a profit or not," says a Democratic staffer who has studied the issue for years. Its mining companies "are willing to get hammered" financially in order to gain control over markets.

A Senate Republican staffer says the federal government has backed American firms, but "people didn't like it. But they do like jobs — and mining jobs are good jobs."

Three bills countering China's rare-earths policies were introduced in the last Congress by Coffman, Sen. Lisa Murkowski, R-Alaska, and Rep. Kathleen Dahlkemper, D-Erie, who lost re-election in November.

Each bill involved some degree of government intervention. None won approval.

Dahlkemper's bill emerged at a sensitive moment — during China's brief rare-earths embargo on Japan in September. A spooked House passed it, 325-98, but the bill lost momentum as the midterm election neared and China relented.

Like Coffman, Murkowski plans to try again.

Many Republicans, however, caution against going too far, too fast.

In a statement, 10 GOP congressmen on the committee that sent Dahlkemper's bill to a House vote said federal loans "should be restricted to those areas not undertaken by the private sector," to avoid "favoring certain companies ... and potentially crowding out further private-sector investment."

Congressional Republicans generally favor trimming regulations to spur rare-earth mining.


Meanwhile, America's numbers across the board continue to decline.

The U.S. share of world spending on mining has dropped to 7 percent, from 21 percent in 1991, according to Carol Raulston, spokeswoman for the National Mining Association.

"When mining moves offshore, you are going to lose the fabrication that goes with it," she says.

"What happened to the manufacturing base? It followed the natural resources."

That was China's long-term plan, according to a congressional report and a Chinese official.

In December, China cited environmental concerns in cutting rare-earth exports by 35 percent.

Yet, in 2009, Zhao Shuanglian, vice chairman of the Mongolian Autonomous Region, told a different story.

According to Xinhua, the official Chinese news agency, Zhao said exports would be cut "to attract more Chinese and foreign investors into the region ... . We are aiming to make Baotou in Inner Mongolia into a world-class rare-earth industrial base."

Baotou, Inner Mongolia's largest city, holds China's largest rare-earth reserves.

Dr. Peter Leitner, a former Defense Department trade expert, bluntly assesses China's dominance in rare earths and other elements and materials.

He calls it a national-security concern as well as an economic issue. Those who disagree "don't realize that the prime cause of wars throughout history has been access to raw materials. There are people who have no sense of history, and I find that deeply troubling."


China leads in the production of many minerals, yet rare earths best illustrate the consequences.

They reflect how China used a long-term plan to develop a critical industry while the United States lost its footing.

Nearly 20 years ago, China's then-leader, Deng Xiaoping, reportedly proclaimed: "There is oil in the Middle East. There are rare earths in China. We must take full advantage of this resource."

The full weight of his remark was widely overlooked.

First, the 17 elements called rare earths are not really so rare — just difficult and costly to mine.

Second, many of their special magnetic or electrical properties were less essential two decades ago.

Finally, the United States then led in production of rare earths, principally from a mine in eastern California called Mountain Pass, owned by a company called Molycorp.

The nation was a major producer of rare-earth products, including neodymium iron boron magnets (neo-magnets) required for militarily sensitive items such as "smart" bombs.

Yet, America's position began to erode. By the mid-1980s, China accelerated production of rare earths and flooded world markets with cheap materials.

Molycorp, meanwhile, faced investigations and a lawsuit for allegedly degrading the environment. Then owned by the oil company Unocal, it closed its Mountain Pass mine in 2002 — leaving America with no production of rare earths, according to securities filings.

The mine's closure largely went unnoticed.

China, however, busily secured commercially minable rare earths at home and abroad. In 2005, the Chinese National Offshore Oil Corp. tried to buy Unocal, but U.S. backlash against selling an American oil company to a Chinese government firm blocked the deal.

In 2009, China Nonferrous Metals Mining Co. Ltd., another government enterprise, bid to acquire Lynas Corp., an Australian firm with plans to develop what its website calls the world's richest deposit of rare earths. Australia's government barred the Chinese firm from taking a controlling interest.

Yet, China did not simply buy raw materials.

A decade earlier, in 1995, two Chinese government-backed companies — together with Sextant Group, a private-equity firm headed by Archibald Cox Jr., son of the former Watergate prosecutor — bought Indiana-based Magnequench, one of the last U.S. makers of neo-magnets.

Magnequench's unique manufacturing process was developed by General Motors — and the Chinese wanted it, according to Stanley Trout, a former Magnequench scientist.

Cox pledged to keep Magnequench plants in America for five years. After that time passed, the plants were moved to China.

Japan's Hitachi Metals closed the last U.S. neo-magnet plant — in Edmore, Mich. — in 2005.

With that, the United States not only stopped mining rare earths but stopped manufacturing neodymium products altogether.


The world began to notice China's dominance of rare earths when it tightened exports about seven years ago, says Jim Sims, Molycorp's public affairs director.

China also began slapping taxes of 15 percent to 25 percent on rare-earth exports, according to the Government Accountability Office.

Yet, nothing awakened the world so much as three recent actions.

In mid-2010, China announced export reductions of 72 percent, Sims says. Then in September, it embargoed rare-earth exports to Japan, following a territorial dispute over small uninhabited islands in the East China Sea.

In December, it set further export cuts of 35 percent.

And on Dec. 30, the People's Daily, the Chinese Communist Party's newspaper, hinted at more tightening. It quoted "experts" as saying recent cuts "did not seem deep enough."

Like much of the world, Japan depends on China's rare earths. It uses the elements to build neo-magnets 10 times smaller and 100 times more powerful than standard ferrous magnets, Sims says. Each Toyota Prius hybrid car uses 2.2 pounds of neodymium for its electric motor and 22 to 33 pounds of lanthanum for its battery.

China's actions stunned Japan. Some rare-earth prices leaped 700 percent while others doubled, according to Bloomberg News. Toyota has said it will work to reduce its use of rare earths.

Prices rose because demand outstrips supply, according to Jeff Green, whose J.A. Green & Co. in Washington represents the U.S. Magnet Materials Association.

World demand is 134,000 metric tons while production is at 124,000 metric tons, according to the Congressional Research Service. It predicts demand will be 180,000 metric tons in 2012.

The difference is made up by stockpiles.

Japan and South Korea have those.

The United States does not.


Setting quotas is one thing. Getting China's far-flung enterprises to abide by them is another.

The Wall Street Journal reported Jan. 20 that 2010's actual cuts were less than officially set.

Still, the recent nationalization of 11 rare-earth mines in southern China and the announcement of more quota reductions leave little doubt among experts that China is determined to reduce rare-earth sales abroad.

Investors have taken notice.

In July, a reconstituted and independent Molycorp Inc. completed an initial public offering of 29 million shares, netting $378.6 million, according to securities filings. In mid-December, it raised $130 million from Japan's Sumitomo Corp.

Molycorp also applied for $280 million in government-backed loans and said last week it will sell $172.5 million in convertible preferred shares.

It aims to mine about 40,000 metric tons of rare-earth oxides by 2013.

Australia's Lynas Corp. raised $450 million in 2009 to develop its mine, producing about 20,000 metric tons annually.

Across the world, other companies are searching for rare-earth deposits.

Minable quantities are believed to exist in Colorado, Idaho, Missouri, Montana, Utah and Wyoming, according to Congress' Government Accountability Office, and the U.S. Interior Department has identified sources in Alaska.

The U.S. Geological Survey pinpoints other potential sites.

Problems solved, right?


That same GAO report said that, once companies find minable resources and the money to develop them, actual production can take seven to 15 years, principally due to state and federal regulations.

Mining is step one — and the easiest — in a five-step process to bring products such as military-strength magnets to market, according to Green.

The GAO lists those steps as mining; separating rare-earth elements; refining rare-earth oxides into metals; forming the metals into alloys; and, finally, manufacturing the alloys into commercial components.


Other hurdles must be crossed, too.

For instance, until 2014, Hitachi Metals holds the patent on neo-magnets. In December, Molycorp and Hitachi said they will form joint ventures this year, removing one obstacle for the American firm.

Yet Ed Richardson, president of the U.S. Magnet Materials Association, says much uncertainty remains about the deal, including where a plant will be built. He does not believe Hitachi will transfer technology to Molycorp, which "doesn't have the knowledge to do this" alone.

America also lacks skilled rare-earth experts. In the 1980s, the U.S. magnet industry employed 6,000 workers, according to Richardson's association. Today's figure: 400.

An even greater gap exists at the scientific level's top echelon. The United States has about 60 scientists and engineers with specialized knowledge of magnet production, to China's 6,000, Green says.

"U.S. leadership in (rare-earth element) technology is eroding," according to a Carnegie Mellon University report. It found that the end of U.S.-based manufacturing "led to the removal of over 90 percent of domestic R&D activities on rare-earth permanent magnet materials."

Conclusion: The "knowledge for producing (neo-magnets) within the U.S. has been lost."

"The knowledge drain is a long-term strategic problem" for America, Molycorp's Sims acknowledges.

Molycorp has hired 20 scientists and is seeking more "as fast as we can," according to CEO Mark Smith. He says the company has contacted retired Japanese experts interested in helping the American firm.

Peter Dent, vice president of business development at Electron Energy Corp. in Landisville, Lancaster County, outlines the challenge: "Japan, China and Germany are extremely good. ... Molycorp is going to have to be competitive against people who are doing very well. It's a big hill to climb."

Thomas Sanderson, deputy director and senior fellow on transnational threats for the Center for Strategic and International Studies (CSIS), a Washington think tank, is equally pessimistic.

"In some ways, it's too late," he says, because China "bought up the market. It will be difficult for us to regain our position. Some skills and industries are perishable."

Coffman, the Colorado Republican, disagrees, "mostly because we don't have a choice. The fact is, the national security and the economic security of the United States are dependent upon the United States not allowing itself to be in a position where it can be dominated."

Leitner, the former Defense Department official, believes everything can be turned around by a "catalytic event" that galvanizes the nation.

"All it takes is a threat, a sudden change," he says. "Politicians swing like cafe doors."


China may have provoked such a threat by raising exports, hiking taxes and briefly embargoing Japan.

One who thinks so is's John Pike.

"The Chinese policy is potentially devastating to China since it's awakened the world," he says. "It depends on whether people have long ... or short memories.

"We don't see as much China-bashing as is warranted by the facts of the matter."

On a recent trip to China, CSIS's Sanderson heard leaders there express concern that "maybe (they've) been a little too aggressive."

So why did they do it?

China's long-term strategy is to use raw-material advantages to lure Western companies, just as Vice Chairman Zhao told the Chinese news agency in 2009.

The near-unanimous consensus of those interviewed is that China's domestic demand for rare earths is in industries dominated by multinationals producing high-tech items such as wind turbines, batteries, cars, fiber optics and electronics.

China wants to replace those foreign manufacturers with its own companies.

The Harvard Business Review reported last month that China is weary of attracting companies that hire cheap Chinese labor. It wants that technology for itself, which foreign companies often give away to gain access to China's markets.

Since 2006, the magazine reported, new Chinese rules "seek to appropriate technology from foreign multinationals."

"The (Chinese) government's hope is that the country will soon become a global innovation center," enabling "Chinese companies to overtake their foreign partners," the magazine concludes.

And foreign companies keep coming.

Following China President Hu Jintao's U.S. visit earlier this month, General Electric agreed to help Aviation Industry Corp. of China to develop advanced avionics for China's new C919 aircraft.

The C919 will compete with the Airbus A320 and Boeing's 737 Next Generation jetliners. The new deal involves technology transfer.

As Coffman sees it, America's China problem is partly self-inflicted.

"Part of it," the congressman says, "is that we've been asleep at the switch when we think China will operate along the lines of free-market principles and not use its leverage ... like (it has done) with rare earths."

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